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Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

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Diversification does not ensure a profit or protect against a loss.

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On June 23, voters in the United Kingdom will decide whether to remain part of the European Union or withdraw from it. The possibility of a British E.U. exit–often shortened to “Brexit”–has caused lots of noise in the press. But what would it mean for investors?

1. Economic growth

Economists have offered a range of estimates on Brexit’s economic ramifications; some are positive, but the majority are negative.

In terms of gross domestic product (GDP), the United Kingdom boasts the world’s fifth-largest economy, according to the World Bank. As of 2015, it ranked seventh among the United States’ trading partners, with $114 billion in total trade, according to the U.S. Census Bureau.

Post-Brexit, the United Kingdom would lose the favorable trade tariffs that E.U. membership bestows. And inward flows of investment by firms–for example, those wanting to establish a U.K. presence to access the lucrative British market–might be discouraged. There might also be a negative impact from restrictions on the number of E.U. citizens allowed to work in the United Kingdom, something that has boosted the U.K. economy and tax revenue in recent years.

The argument that Brexit would increase U.K. GDP assumes that U.K. trade outside the European Union (particularly with Commonwealth countries, such as Canada) could increase, even though such trading opportunities already exist. The anti-E.U. camp also argues that removing what it sees as burdensome E.U. regulations would allow stronger economic growth. But the United Kingdom is already one of the least regulated economies in the European Union. What’s more, many E.U. regulations were actually initiated or supported by the U.K. government. In some cases, the U.K. government has introduced rules over and above those that apply elsewhere in the European Union.

Finally, on immigration, it would still be possible for E.U. citizens to live and work in the United Kingdom post-Brexit, but the choice of who can do so would be up to the U.K. government. On the whole, this could be an improvement over unrestricted access to workers of all types.

Overall, the consensus view of economists suggests that E.U. membership is positive for the U.K. economy, but there are considerable uncertainties, especially over the long run. And while an economic downturn in the United Kingdom would not carry the global weight of a downturn in, say, the United States or China, there could be ripple effects for countries around the world.

2. Costs of doing business

For U.K. residents, Brexit would probably mean higher investment costs. U.K.-based asset managers would likely lose access to the “passporting” arrangements that allow them to distribute investment products in E.U. markets. This might compel them to set up additional offices in continental Europe, and it’s likely that the cost of doing so would be passed on to the end investor.

The alternative argument is that the cost of investing in the United Kingdom could fall because of the removal of regulatory costs imposed by the European Union. So, overall, the net effect is still probably an increase in cost, but admittedly the outlook is not completely clear.

3. Market volatility and investor uncertainty

Speculation about the United Kingdom’s leaving the European Union has already increased volatility in European and global markets, especially for assets denominated in British pounds. Some studies have suggested that Brexit could cause the pound to weaken further, perhaps as much as 20%. This might suggest that investors avoid allocating assets to the United Kingdom. However, this possibility has already been “priced in” by the markets to some extent. And if Brexit doesn’t happen, sterling-denominated assets might end up representing good value.

The short-term impact, then, would be a degree of market volatility and disruption. But it’s difficult to predict how significant the impact would be for a long-term investor holding a well-diversified global portfolio.

So what’s the answer?

Taking all these factors together, there seems to be evidence that E.U. membership provides benefits to investors in the United Kingdom. However, the pros and cons for individual investors are affected by a wider range of factors. It’s difficult, if not impossible, to say definitively that Brexit would ultimately be good or bad for the United Kingdom. For the United States and other parts of the world, the implications are even less clear.

Peter Westaway

Peter Westaway, Ph.D., is chief economist and head of the Investment Strategy Group for Vanguard Asset Management, Limited, Vanguard’s European entity. He meets with clients and writes articles to provide Vanguard’s perspective on economic issues and longer-term investment strategy implications. Mr. Westaway was previously chief economist, Europe, for Nomura International and a senior official at the Bank of England. Mr. Westaway earned a Ph.D. in economics and an M.Phil. in control engineering and operational research from the University of Cambridge, and a B.Sc. in mathematics and economics from the University of York. He is a visiting professor at Queen Mary University of London.

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For more information about Vanguard funds or Vanguard ETFs, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

All investing is subject to risk, including possible loss of principal.

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